What The EU Can Learn From The National Football League

On Monday, the anti-austerity party SYRIZA won a decisive victory in Greek parliamentary elections. This throws into question not only the government’s stance with respect to the various bailout and austerity packages, but even their continued membership in the EU. As well it should, for the game is stacked against them and those who write the rules are making sure it stays that way.

Greece adopted the euro on January 1, 2001. The benefit was that this was seen as a badge of honor, an indication that Greece had made it into the big leagues. The cost was surrender of control over their own monetary and fiscal policy and the inability to have an independent currency that can depreciate to help reduce trade deficits.

If that sounds like it might be a bad deal, it’s because it is. Imagine if that’s what happened to expansion teams in the NFL. They would enter the league as the weakest franchises with the most inexperienced players and coaches and an uncertain fan base. Yet if the NFL operated like the EU, the new team would then be forced to run the exact same offensive and defensive scheme as everyone else in the league and their draft pick would not be adjusted based on their record (i.e., they wouldn’t receive preference in draft order when they lost, as they do in real life). The veteran teams would obviously have selected schemes that were best suited to their own personnel and would therefore continue to win, while the new franchises would lose but not be given the chance to catch up via a reordering of the draft. Meanwhile, if the expansion team is to avoid bankruptcy it would have to take on increasing levels of debt, making further success even more difficult. It is impossible to escape this cycle without correcting the inherent bias in the rules.

This is precisely what has happened to Greece. They were forced to adopt the same monetary policies as the rest of the union and because they no longer issued their own currency, this severely limited their options in terms of fiscal policy. They are stuck with whatever Germany, et al decides is best. And when they ran trade deficits, the fact that they used the euro meant that they didn’t have an independent currency that would get cheaper and help them regain competitiveness–the draft order wasn’t adjusted.

It’s worse than that, actually, since in point of fact the Greeks found themselves winning despite the fact that the system was stacked against them. After adopting the euro, they did quite well. Greek unemployment fell and labor productivity gains were among the highest in Europe–higher, even, than Germany’s. The Germany reaction, however, was not to congratulate their new competitor, but to change the rules. They implemented new labor market policies that suppressed wages in order to make their own goods and services cheaper (Why the United States is Not Greece). It’s as if the expansion team learned how to win despite the league-imposed schemes, so the powers that be changed the schemes! Rising debt levels followed and Greece was soon trapped in a situation where they had to spend more effort repaying debtors than growing their own economy.

The EU Haves and the bankers were quick to blame the Have Nots. They argued that the real problem was Greek profligacy, especially overly-generous social programs that allowed Greeks to live beyond their means. The subsequent bail outs and austerity programs were, they said, necessary to repay those in other countries who had so generously supported extravagant their lifestyles. A day of reckoning was inevitable and no one’s fault but Greece’s.

However, not only does this gloss over the labor-market policies implemented by the Germans, it totally ignores a very important fact: Germany actually spends a HIGHER percentage of GDP on social programs than does Greece (26.7% versus 20.6% from 2001-7; OECD data)! Clearly, that can’t be the real problem. It’s like blaming the failure of the new franchise on the high salaries paid to players and staff when, in fact, they were lower (even relative to revenues) than those of veteran teams. Blaming the victim, however, is an easy game to play since their justifications are easily recast as excuses.

And so yesterday the Greeks called foul. They changed their general manager and are telling the rest of the league that they are renegotiating the deal. Good for them. But, it appears as if they aren’t going to go far enough as all indications are that they are only renegotiating the debt, not rejecting the system that created it. There is absolutely no reason to believe that until they regain control over monetary and fiscal policy and quit the euro (or the EU rules are adjusted to make the single currency viable) that they will truly extricate themselves from this situation. You don’t improve the state of your economy by causing it to contract via austerity programs, any more than a team will get better by cutting it’s best players and staff. That was never the problem in the first place and will only serve to make them even less competitive.

Of course, that’s the point. It should be obvious what Germany gets out of this. Not only do they get an external source of demand for their goods and services by engineering policies that make them competitive, but they then generate financial revenue by “helping” their victims with bailout packages.

What the Germans don’t see, however, is that while this might be a lot of fun in the short run, in the end it is counterproductive. Returning to the NFL analogy, it is not in the league’s best interest to drive franchises out of business. Were it organized like the EU, then the veteran teams would temporarily benefit from draining income from new franchises. Once bled dry, however, they would need to attract new entrants. Presumably, that would become increasingly difficult to do. Furthermore, the veteran teams are reducing their own future profitability by making the league less competitive. You make money by hosting games, particularly ones where the outcome may be in question. That means you need to have more than one team! Even a league of two or three or four is unsustainable. As Commissioner Roger Goodell (an economics major) understands very well, if you want the NFL to continue to exist as a viable enterprise, then it is necessary that the system not be rigged to channel income from the new and smaller-market franchises to the veteran and big-market ones. Teams need other teams to play against, preferably competitive ones.

Likewise the EU. As Germany and other trade surplus nations force the deficit countries into debt and austerity programs, so the market for their own goods and services dries up. Nations with double-digit unemployment don’t import nearly as much as those without and if Germany wants to run a trade surplus, there must be someone with the economic wherewithal to run a deficit. NFL games can’t be played unless there are other competitors; trade can’t exist without viable trading partners.

And so while we should applaud the Greeks for rejecting as unjust some of the sanctions that have been forced upon them, until the EU is run more like the NFL than a debtors’ prison, the overall situation won’t really change.